The Sourcebook

Weigh the Options for a Fair Deal on Foreign Money

Whether exchanging dollars abroad or at home, let the buyer be wary.

Just off the plane in a strange country, weary and bleary after a long flight, you'll almost immediately encounter a money-changing booth where signs list the buy and sell rates for dozens of currencies. Your jet-lagged state could be bad for your budget: Changing a few dollars for taxi or bus fare at one of these airport booths could end up costing you as much as a 10% premium.

In the high-tech 21st century, there are more ways than ever for travelers to deal with money abroad. The best strategy, financial experts say, is to use a credit card whenever possible and ATM cards to get local cash.

"We recommend customers use their [credit] cards for big items because they've got protection," says Mike Sherman, spokesman for Visa International. Credit cards can be canceled and, unlike cash, can be replaced if lost or stolen. If you dispute a charge, you can issue a stop payment until it's resolved.

Most important, credit card exchange rates are often the most favorable. But beware: It's only a good deal if you pay off your bill each month. The interest on a balance, even for one billing cycle, could cancel out any exchange rate savings.

The convenience of automatic teller machines is tough to beat--you can withdraw only the amount of local cash you're comfortable carrying. You'll find ATMs everywhere in most developed nations, and the variety of networks (STAR, Interlink, Plus and the like) practically guarantees that if your card doesn't work at one machine, it will work at another down the block.

Many foreign ATMs only accept four-digit PIN numbers. If your PIN is longer, check with your financial institution about changing it before you leave the country. Sometimes it's as simple as going to your own bank's ATM and changing it yourself.

You also can purchase traveler's checks in the currency of your destination country. American Express, Travelex (which acquired Thomas Cook Global & Financial Services last year) and Visa offer checks in a variety of currencies, including the euro. Travelers to the Continent may find this particularly convenient since the euro became the official currency of most European Union countries last winter. (Britain, Denmark and Sweden declined to adopt the euro; Switzerland, Norway, Iceland and all of Eastern Europe are not EU members and thus retain their national currencies. For more information, or to familiarize yourself with the new euro denominations, visit the European Central Bank's Web site at www.euro.ecb.int.)

With an estimated 8 million Americans expected to visit euro-zone nations this year, millions of dollars will be saved on currency exchange when traveling between countries, according to Neil Martin, spokesman for the European Travel Commission. "It's just one of the reasons Americans [could save] money in Europe this year," he said, also citing generally lower air fares, good tour prices and the strong U.S. dollar.To compare money exchange services and rates, during a trip to London in mid-April I conducted an experiment by buying British pounds using credit cards, ATMs, currency exchange booths and hotels. As a base rate, I used the interbank exchange rate (used by financial institutions trading in millions of dollars) that was quoted in the Los Angeles Times Business section the previous day: 1.4385 dollars per pound.

What I found supports the experts' advice. Credit card purchases indeed produced the most favorable rates, followed by ATM withdrawals and purchasing pounds in the U.S. before the trip. The worst rates were in airports and currency exchange booths in London. Exchange rates for traveler's checks in U.S. dollars were either equal to cash equivalents or a little worse. Here is a ranking of the rates I got, best to worst:

* Arriving in London, I used my Visa card to charge 23 pounds for a round-trip ticket on the Heathrow Express, the high-speed train that takes passengers from the airport to Paddington Station. I was billed $33.43, an exchange rate of 1.4535 dollars per pound. This included the markup charged by the credit card company, about 1% over the interbank rate. It's a kind of hidden fee, but still the best deal I got. (Call your credit card companies before leaving home and ask what each charges as a markup on foreign exchange purchases. Then use the one with the lowest markup as your prime credit card.)

* Next, I withdrew 100 pounds using an ATM at a Piccadilly branch of HSBC Bank, a large British financial institution. For this, my home bank charged me $145.01 plus a $1.50 fee for using an "out-of-network" ATM. The total: $146.51, almost 2% over the interbank rate.

* On the same day I was spending money in London, one of the L.A. Times' travel editors contacted International Currency Express in Beverly Hills, (888) 278-6628, www.foreignmoney.com. The editor was quoted a cost of $148.82 for 100 pounds. This was about 3.5% above the interbank rate but did not include the cost of delivery (about $10 in L.A.) or pickup (parking, gas, time).